Also now, as FSX is so old, many ILS frequencies on current charts do not match FSX, same with the ILS course. I always check this by going to the FSX map and looking to see what frequency and course FSX has.

Often there are differences, either because the sources of weather are different or because the timing of the weaether updates is a bit different. When flying online on VATSIM, you should be using the same weather as everyone else is using, especially including the controllers. So we provide tis option.
Also, it gives you another source of data in case one or the other servers goes down.

We are evaluating everyone's comments so that we can make some improvements. This is very difficult to do within the framework of simconnect and FSX, but we are still doing what we can.
For reference, the way Reed described this smoothing effect to me was imagine the aircraft in a box. The smoothing is supposed to change the weather outside of the box kind of at the edges in a slow kind of way and not right at the aircraft to try and smooth out the effects, kind of like morphing as you describe. Hyper smoothing even more does this. However, since the winds etc at any one point near and around and ahead of the aircraft have been massaged and manipulated, they are by definition, "not real", and so "accuracy" is sacrificed.
We now have thousands of users, not just 20-30 beta testers, running every possible system and configuration and method out there and so we are going to find out how well this generally really works. We are still evaluating what everyone thinks about this with an eye toward seeing what we can improve and what we need to improve. Reed and the team are on top of this.
For this reason, we all appreciate yours and everyone's comments.